Summary of Powell's Speech (2): Current data indicate that the U.S. economy continues to grow steadily, with strong consumer spending and business fixed investment particularly supported by expenditures on artificial intelligence data centers.
The labor market is gradually cooling down: labor demand is noticeably slowing, hiring and layoffs are sluggish, and September showed a slight increase in the unemployment rate, with significant slowing in job growth, leading to a slight weakening in overall employment vitality and existing downside risks. Caution is warranted when assessing employment data, as some household employment figures and the CPI may be distorted by data collection or technical factors. The Federal Reserve's assessment suggests that recent job growth may have been exaggerated, and the cooling of the labor market is relatively gradual, with an expectation that net job gains may decrease by about 20,000 per month.
Regarding inflation, the overall level remains slightly above target. Services inflation continues to decline, but there is upward pressure on goods inflation, with some of this related to tariff factors. Long-term inflation expectations remain aligned with the committee's target, but inflation risks are tilted to the upside.
In terms of monetary policy and tool usage, the committee emphasizes that there is no risk-free path for policy, and there are internal disagreements on whether to further lower interest rates: some advocate for maintaining rates, while others support additional cuts once or multiple times. Today's decision received broad support, but there are reasonable differences on how to weigh risks. The Chair pointed out that the effects of rate cuts are just beginning to show, and the Federal Reserve will carefully assess subsequent actions based on a large amount of upcoming data, using "magnitude and timing" as criteria.
Regarding liquidity and reserve management, the Federal Reserve believes that reserve balances have reached a comfortable level. To support effective control over policy rates, the Federal Reserve will manage reserves through the purchase of short-term Treasury bills and has removed the total volume limit on standing repo operations. Related large-scale Treasury purchases are expected to be completed before April 15 of next year. The Federal Reserve emphasizes that these purchases are solely for reserve management and do not equate to a direct adjustment of policy stance, but the scale of purchasing may remain high in the coming months.
Overall, the Federal Reserve is in a favorable position: it has both tools and space, and will flexibly decide whether to adjust the policy rate based on new data in successive meetings.
